GST Refund Framework: When Clarity in Law Meets Chaos in Practice

 GST refunds were envisioned to be seamless — system-driven, timely, and transparent. Yet, any exporter or service provider today, and a familiar theme emerges: refunds have become the most unpredictable part of GST compliance. What was promised as a straightforward credit-release mechanism now often feels like a slow-burn suspense drama — the law may be clear, but the outcome rarely is. And while businesses wait, working capital remains locked, confidence strained, and planning reduced to hoping that relief arrives before liquidity runs out. This note continues as our earlier observations on refund challenges  https://ldrgst.blogspot.com/2024/03/taxpayers-encouraged-to-quote-these.html.

One growing trend is rejection of refund applications on grounds already clarified by statute, circulars, and case law. This leads to re-litigation of settled issues, unnecessary dispute cycles, and prolonged withholding of funds legitimately due to taxpayers. While appeals exist under Section 107, the lack of statutory timelines for disposal means many appeals filed in 2019 still await closure in 2025. In such scenarios, the appellate remedy becomes more of a waiting chamber than a resolution mechanism. Refunds are statutory entitlements — not concessions to be released at administrative discretion.

Jurisdictional Overreach

A particularly concerning pattern observed in under State jurisdiction is analysing the refund application on the basis of reports prepared by officers from another jurisdiction. In practice, the proper officer appears to be “verifying” refund applications primarily based on a report prepared by an officer from another jurisdiction — almost as if jurisdiction can be shared like office stationery. While collaboration is welcome, jurisdiction under GST is not meant to be a group project. Jurisdiction is a legal boundary, not a logistical convenience, and this practice has no explicit basis in the GST law. Such informal cross-administration review creates avoidable uncertainty and raises serious questions about consistency, legality, and taxpayer protection.

Adding to this, Instruction No. 06/2025 introduces no clear criteria for categorising refund applications, effectively leaving outcomes to the discretion of the proper officer. It states that reasons must be recorded in writing before categorising refund applications. While this appears to introduce accountability, the practical concern remains: who evaluates whether the reasons are legally sound or merely formalities? In many instances, orders are non-speaking, offering little more than templated justification without addressing the facts, documents, or legal position put forth by the taxpayer. Recording a reason is not the same as providing a reasoned order, and unless there is a mechanism to ensure genuine scrutiny, this requirement risks becoming a procedural checkbox rather than a safeguard of fairness. Discretion has its place in administration, but it must operate within transparent guardrails. 

Further, despite explicit clarification in CBIC Circular No. 161/17/2021-GST confirming that services provided by an Indian subsidiary to its foreign parent qualify as export of services, refund claims continue to be denied citing Section 2(6)(v), as though the clarification never existed. Where clarity in law and policy exists, practice must align. Re-interpretation of settled issues adds compliance burden and delays legitimate refunds.

The cumulative impact of such practices extends far beyond procedural inconvenience. Working capital blockages affect salaries, procurement, and growth plans. Businesses hesitate to scale exports or enter new markets when refund timelines seem uncertain. Operational anxiety replaces economic confidence. Enterprises don’t expect friction-free systems; they expect consistent ones. Where predictability falters, business sentiment follows.

To summarise, India’s GST regime is built on the promise of neutrality, seamless credit flow, and ease of doing business. To uphold that promise, refund processing must reflect the principle that statutory rights cannot be overshadowed by administrative subjectivity. Uniform procedures, adherence to jurisdictional discipline, timely appellate disposal, strict observance of circulars and precedent, and restrained discretion are essential. GST has the legal framework — what is needed now is consistent implementation aligned with the spirit and intent of the law.

- K N Akshaya MA LLB